Severance Agreements: Restrictions on Confidentiality and Non-Disparagement Clauses that Employers Need to Know

Last February, the National Labor Relations Board (“NLRB”) issued a decision that made a very clear statement regarding the need for carefully worded severance agreements.  In the McLaren Macomb decision, the NLRB held that employers may not extend severance agreements to employees that include a broad waiver of any rights contained in the National Labor Relations Act (the “Act”).

The issue presented in McLaren Macomb was whether an employer violated Section 8(a)(1) of the Act, when they issued severance agreements to employees that not only required the employees to release the employer from any claims arising out of their employment or termination, but also prohibited them from making statements that could disparage the employer and prevented them from disclosing the terms of the agreement.  The severance agreements also included substantial injunctive and monetary penalties against the employees in the event the non-disparagement or confidentiality provisions were breached.

The NLRB is charged with protecting employees from unfair labor practices.  As such, it has a long history of finding to be unlawfully coercive any agreement which places employees in a position of choosing between exercising their rights under the Act and receiving benefits.  Accordingly, the McLaren Macomb decision reverses recent precedent which suggested that employer animus is a factor in determining the validity of severance terms.  Instead, it looks back to nearly a century of settled law in returning the test to one which very simply and clearly finds an agreement to be unlawful if, on its face, it restricts the exercise of statutory rights.

The NLRB has since issued guidance as to how this decision should be interpreted within which it has clarified that the holding shall be applied retroactively to severance agreements that were already in effect at the time the decision was issued.

Considering the McLaren Macomb decision, employers should carefully review the terms of their severance agreements.

(This blog, prepared by Campanella Law Office, is for general informational purposes only and is not intended to convey specific legal advice, nor is it intended to create or constitute an attorney-client relationship.)

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